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While there are many different types, styles and lenders
who provide mortgages, the premise behind a mortgage is fundamentally
simple. A mortgage is a loan you obtain to purchase a home.
The type of loan you can obtain depends on a number of factors
and these factors determine the specifics of your loan.
Behind the numbers-Rates, Points and Fees
The total cost you will pay for your loan depends on a number
of different factors including the interest rate of the loan,
the discount points and loan fees. These all are included
in the overall cost of the loan.
Interest Rate – the percentage of interest you pay on
the outstanding balance of the loan each month. Simply, this
is the cost of borrowing money. Different criteria factor
into your actual rate of your mortgage, including the current
rate environment, type of loan and personal financial history.
Loan Fees – up front charges that cover the costs of
the loan (originating, processing, closing, etc.)
Points - companies will charge a fee for lending you money.
The fee is usually a percentage of the loan and is sometimes
referred to as "points." One point is equal to one
percent of the amount you borrow. For example, if you were
to borrow $10,000 with a fee of eight points, you would pay
$800 in "points."
Each of the costs determines the overall costs you will pay
for your new home. A combination of the interest rate, loan
fees and points depend on your particular situation and needs.
Financial Partners is here to ensure you are matched with
the correct loan.
The loan for your home is a delicate balance of your needs.
There are many, many different loans with different features.
With Financial Partners we will find the loan that is best
for you.
Most home loans are categorized in two forms; fixed-rate
mortgages and adjustable-rate mortgages (ARMs).
Fixed-rate mortgages are mortgages that have the same interest
rate for the entire term of the loan. With fixed rate mortgages
you have essentially the same monthly payment for the life
of the loan. Plus, since the rate is determined when the loan
is originated, you are protected from rising interest rates
and fluctuations in the market.
Adjustable-rate mortgages (ARMs) are mortgages that have
interest rates that adjust periodically based on market conditions.
With ARMs the interest is fixed for an introductory period
and is normally lower than a fixed rate mortgage. After the
introductory period (typically one to ten years) the rate
is adjusted annually based on a market index, although it
can not go above a predetermined cap.
A benefit of the lower initial rate, borrowers may be eligible
for a larger loan amount with and ARM than with a fixed rate
mortgage.
Loan Terms
The term of the loan is the period of time you agree to repay
the loan. Common loan terms are thirty, twenty, fifteen or
ten years. The term you agree on will depend on a number of
factors that meet your specific needs.
Longer mortgage terms – these loans offer lower monthly
payments but costs more overall considering the extended interest
expense.
Shorter mortgage terms – these loans are less expensive
overall but have higher monthly payments.
Your Monthly Mortgage Payment
Mortgage payments can generally be divided into four parts:
principal, interest, taxes, and insurance. These are often
referred to with the acronym PITI.
Principal refers to the amount of money you borrow to buy
a home, and to the outstanding loan balance at any point during
the mortgage term.
Interest is the cost of borrowing money. As noted above,
the amount of interest you pay each month is determined by
your interest rate.
Taxes assessed by your local government will likely be collected
by your lender as part of your monthly payments, and then
paid annually or semi-annually on your behalf. This process
is known as an escrow.
Insurance, like property taxes, is normally collected by
the lender in an escrow account. Insurance offers financial
protection, and has two major components:
Homeowner's insurance, also called hazard insurance, protects
you against damage to your property caused by fire, wind,
or other hazards.
Mortgage insurance protects your lender in the event that
you fail to repay your mortgage. Whether you must pay mortgage
insurance usually depends on the loan program and the size
of your down payment.
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